Boss departs with zillions, his enabler is lingering on

May 26, 2004|By JAY HANCOCK

OF THE five people you meet in Hades, maybe one will be a CEO compensation consultant.

Their talent is often unappreciated. But few of the amazing executive money grabs of the past decade would have been possible without kept suits standing in the shadows, rubbing their hands and pronouncing the packages "competitive" and "reasonable."

Behind every overpaid CEO is a guy who coos about "metrics," "comparators," "SERPs" and "SESPs."

Don't understand? Don't worry, neither do board members who vote on executive pay.

In fact, the process of setting boss pay is basically irrelevant. The only thing you need to know is that CEOs usually get a lot more than they deserve. The rest is tulle and crepe to disguise reality.

We could call CEO-pay consultants the handmaidens of munificence, except they're not very maidenly.

Mercer Human Resource Consulting was paid $440,275 during eight months last year to advise the New York Stock Exchange on retirement-plan matters, including how to value then-CEO Richard Grasso's pension for the purposes of paying him off in a lump sum.

In return, Mercer consultant William D. Mischell failed to disclose details to the NYSE board that would have raised crimson flags about the legitimacy and size of Grasso's boodle, according to regulators. How's that for serving the client?

The Grasso case, as exposed by New York Governor-in-Waiting Eliot Spitzer, is a veritable museum of bad executive-pay practices. But the diorama showing the compensation pro, rarely seen by civilians in his native habitat, is especially interesting.

Spitzer sued Grasso to recover more than $100 million of what he calls "a wholly inappropriate and illegal compensation package" worth $187.5 million.

Irregularities were everywhere. Bankers whom Grasso was supposed to regulate set his pay. Securities lawyer Martin Lipton advised Grasso "as a friend" while working for the exchange, according to Spitzer. The board rammed through Grasso's package even though some directors were absent and the matter had been yanked from the pre-meeting agenda. Directors held wildly varying perceptions - by tens of millions of dollars - of the value of the package they were voting on.

Maybe that's because Mercer's Mischell, the guy who actually understood the deal, reported solely to NYSE human resources head Frank Z. Ashen - whose boss was Grasso!

The tone for Mischell's dealings with the exchange was set in 1999 when, regarding reasons to alter another aspect of Grasso's pay, he wrote in a note, "1. Grasso wants it (the rest are details)."

In 2002 and 2003, when Grasso was renegotiating his pay package with the NYSE board, Mischell was asked to calculate its cost.

But his report, according to Spitzer, overstated the savings the exchange would reap by paying Grasso pension benefits in a lump; failed to factor in Grasso's 2002 pay, which was lower than in previous years and would have reduced his accrual; counted as "vested" more than $13 million in deferred benefits that were unvested; credited Grasso in one account with a guaranteed 8 percent annual return to which he was not entitled; and did not mention that, depending on prevailing interest rates when he retired, Grasso might be entitled to even more than $187.5 million.

The directors who approved Grasso's hoard on Aug. 7, 2003, were clueless. "There was significant confusion among the board members" says Spitzer's complaint. "Some believed that the Grasso proposal was limited to the immediate payment of $139.5 million while others understood that it also entitled Grasso to $48 million in future payments. None of those present were aware that it potentially entitled Grasso to [an] additional $12 million in `hidden payments.'"

America's corporate leadership at work.

Mercer spokeswoman Stephanie Poe declined to make Mischell available for an interview. But she noted that Mercer, which agreed to give back the $440,275, did not design Grasso's pay package, only measured it.

"We stand by the quality of our work," she says, adding that, "like most actuarial reports, the Grasso analysis involved many complex details and assumptions, not all of which were detailed in the final report."

Grasso's unvested benefits, she said, would have become vested under almost any circumstance and were already treated as vested for tax purposes, so it was appropriate to refer to them as vested in the report.

I asked whether Mischell is still working at Mercer.

"I can confirm that he is still employed," she said. "In fact, he is still doing work for the New York Stock Exchange."

Huh? Spitzer's examination of Mercer "was just announced," says NYSE spokesman Ray Pellecchia. "So of course it still has to be reviewed."

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.